Planetary Pulse

The rise of transition finance

What transition finance means for asset owners and its role in the path to net zero

Planetary Pulse reveals the findings from new primary research into transition finance.

It is based on a survey of 300 senior professionals at asset-owner institutions and advisors around the world, including pension funds, insurers, endowments, foundations, central banks, sovereign wealth funds, and consultants.

Southern Africa highlights

Southern Africa asset owners have a distinct perspective on climate-related investing and transition finance. The other regions in our survey are all developed markets, and in Southern Africa, it is often not suitable or fair to put climate concerns ahead of critical social and economic issues.

This bears out in our survey results, where compared to other regions, significantly lower proportions of Southern Africa asset owners say that fighting climate change is one of their fund’s strategic objectives (37%), and that financial institutions have a responsibility to provide investment capital to fund the decarbonization of high emitters (37%). The same pattern holds in relation to transition finance being viewed as a major commercial opportunity for asset owners, and of its growth prospects, both of which are much lower than other regions.

Nevertheless, 22% of Southern Africa asset owners use transition finance in their funds, which is around the global average, and 48% say it is likely that they will invest in transition finance over the next 12 months – the latter was the highest result of all regions. What might differentiate these investments from those of developed market asset owners is that they may often be designed to make a real impact on more than just the climate, with goals related to, for example, working conditions, community uplift, or infrastructure development.

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Visualised: The rise of transition finance

When it comes to generating real-world impact through transition finance, adoption rates vary. Transition Finance Leaders are actively using transition finance as part of climate-related strategies, Transition Finance Laggards are not.

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Real-world impact: The rise of transition finance

‘Green’ strategies, such as ESG-branded assets, are designed to have small carbon footprints. In some cases though, this means they are avoiding carbon-intensive industries, rather than taking meaningful steps to help lower emissions. Transition finance is about real-world impact.

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How pension funds enable transition finance

Listen to an exclusive interview with Brunel Pension Partnership’s chief responsible investment officer, Faith Ward, and portfolio manager, Daniel Spencer as they discuss how asset owners can enable vital transitions while remaining true to their fiduciary duties.

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Download the report and infographic to reveal what transition finance means for asset owners and its role in the path to net zero.

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